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Volkswagen's Role in Tennessee's Automotive Industry
29 Jul 08
The investment from Volkswagen solidifies Tennessee's position as the leading automotive manufacturer in the U.S. South.
On July 16, Volkswagen announced that Chattanooga will be the site for its $1-billion automobile assembly plant, scheduled to begin production in 2011. The announcement is momentous for the state's automotive industry, which has not had a new assembly plant since General Motors in the early 1990s. While inexpensive production costs, right-to-work labor, and vast land available for large manufacturing facilities leaves the South poised to reap the benefits of foreign automobile manufacturing in the United States, competition between southern states is fierce. Tennessee has remained the southern leader in automobile manufacturing over the past two decades, but has lost ground to its neighbor to the south. Indeed, foreign manufacturers have flocked to Alabama over the last 15 years, landing assembly plants for Mercedes-Benz, Honda, and Hyundai as well as an engine plant for Toyota and a host of suppliers. Furthermore, over the last two years Tennessee pursued but missed out on assembly plants for Toyota and Kia, both going to bordering states; its inability to attract foreign manufacturers was threatening its future southern supremacy in its most important manufacturing industry. Landing the Volkswagen deal solidifies its position as the leading auto manufacturer in the south.Volkswagen originally considered sites in three states—Alabama, Tennessee, and Michigan—but in the weeks leading up to the decision it became a two-state race. The site in Chattanooga edged out Huntsville because of the infrastructure in place at the Enterprise South Industrial Park, slightly lower production costs, and the willingness Tennessee demonstrated to move the project along; incentives awarded to the automaker are expected to total over $500 million, the largest package ever for an automotive plant in the United States. Along with the 2,000 direct jobs, the plant will lead to thousands of auxiliary supplier positions, and at full production will produce 150,000 vehicles annually. Its location on the southern border will create further job opportunities for Alabama and Georgia, a positive externality for those states that Tennessee experienced during Alabama's automotive boom over the past decade. More important, though, is the opportunity for future investment. The Volkswagen plant will be the first foreign assembly facility to move to the state in 25 years; the Mercedes-Benz plant in Alabama, which began production in 1997, opened the door for substantial investments from Honda, Hyundai, and Toyota. States with the Largest Combined Employment inMotor Vehicle
and Motor Vehicle Parts Manufacturing Industries | | Â | 2000 | 2007 | Percent Change | Michigan | 318,351 | 189,223 | -40.6 | Ohio | 151,066 | 106,629 | -29.4 | Indiana | 104,702 | 79,846 | -23.7 | Tennessee | 53,227 | 49,795* | -6.4 | Kentucky | 52,646 | 48,293 | -8.3 | Alabama | 13,406 | 29,372 | 119.1 | *Nine-month average for motor vehicle manufacturing. |
When looking at the top automotive manufacturing states since 2000, employment in the northern auto manufacturing states still trump their southern counterparts by a considerable margin. However, the trend of foreign investment in the South and domestic automotive consolidation up north is closing the gap. With its proximity to the growing supplier base in the South, inexpensive labor, and ample transportation and developmental infrastructure, Tennessee will continue to be an attractive destination for auto manufacturers, and looks to be the most likely candidate to move into the top three in the years to come. After a challenging decade, the investment from Volkswagen will be a major boon for the state, solidifying its role as the automotive leader in the South and increasing its presence nationally. by Karl Kuykendall
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